Concerns about debt used to finance artificial intelligence have moderated following recent volatility, but upcoming company updates will test credit markets again. Meta Platforms announced plans on Monday to raise $95 billion through a stock offering, helping narrow the company's credit-default swap spreads. Meta's third-quarter free cash flow turned negative, pushing the company's credit-default swap spreads and bond yields higher last week. Other companies' credit-default swap spreads also increased before retreating.
Richard Cheng, head of Nuveen's investment-grade corporate sector team, said investors had expected Meta to announce a large bond sale shortly after earnings. Cheng said the absence of that announcement relieved investors and directly helped narrow AI-related credit spreads. A credit spread measures the yield difference between corporate debt and Treasury securities with comparable maturities. Narrower spreads indicate greater investor confidence in the issuer.
Oracle holds Investor Day on Wednesday. Alphabet is scheduled to release quarterly results after trading closes on Wednesday. Amazon is scheduled to release quarterly results after trading closes on Thursday. Microsoft also reports on Wednesday, but Microsoft has not issued bonds to finance AI spending.
Credit-default swap spreads remain wider over the past year because debt issuance has surged and free cash flows across the AI sector have turned negative. Meta's credit-default swap spread remains 177% higher year to date. Amazon's credit-default swap spread has risen 129% year to date. Bond yields also remain high. Paul Meeks, CNBC contributor and Freedom Capital Markets' head of technology research, said recent trading suggests investors recognize that credit concerns may have been excessive. Meeks expects sentiment to improve further as companies release quarterly results over the next few weeks. CreditSights analyst Jordan Chalfin estimated that technical factors and sentiment, rather than necessarily fundamentals, explain 80% of the market moves.
Alphabet and Amazon will provide important tests for technology bonds through updates to capital expenditure plans and free cash flow forecasts. Both companies recorded cash outflows on a free cash flow basis during the second quarter, and analysts expect those outflows to continue. FactSet consensus estimates put Alphabet's third-quarter free cash flow at negative $2.3 billion. FactSet consensus estimates put Alphabet's third-quarter capital expenditures at $55.2 billion. Analysts expect Amazon's third-quarter free cash flow to be negative $9.9 billion. Analysts expect Amazon's third-quarter capital expenditures to reach $58.7 billion. S&P Global Ratings projected in an August report that hyperscalers would generate negative free operating cash flow during 2026 and 2027. Cheng said investors' primary concern is the direction of hyperscalers' capital expenditure guidance. Meeks views high capital expenditures as evidence of strong AI demand and said hyperscalers consider the spending necessary, not merely worthwhile.
Chalfin does not expect hyperscalers to announce substantial new bond issuance around earnings releases. Oracle's disclosures may matter more to credit markets. Oracle has issued $117 billion of long-term debt. According to S&P, Oracle's BBB-1 credit rating places the company at the lowest investment-grade level above junk. Chalfin called Oracle the most important investment-grade technology credit because Oracle is more financially stressed than A-rated companies and trades more like high-yield debt.
S&P Global said in a September report that complex arrangements outside company balance sheets finance data centers and chips without full transparency. Mark Habib, digital infrastructure sector lead at S&P Global Ratings, said on Monday that data center leases and chip purchase commitments are not necessarily classified as debt. Habib said S&P is seeking to make those commitments more visible so investors can better understand the obligations companies undertake.
Hyperscalers other than Oracle have credit ratings comfortably above A levels, reflecting diversified revenue, substantial interest-payment coverage and room for additional borrowing. Cheng said credit repricing does not amount to a credit crisis. Cheng said the largest hyperscalers retain exceptional credit profiles, strong cash generation and liquidity. Cheng said investors are focused on rising capital expenditure needs and the increasing debt supply required to finance those needs, rather than credit quality.
AI Debt Fears Ease as Meta, Oracle, Alphabet, and Amazon Prepare Updates
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Summary
Fear and greed index levels have stabilized as debt fears tied to AI expansion ease, but markets remain tense ahead of updates from Meta, Oracle, Alphabet, and Amazon. Meta’s $95 billion stock offering helped tighten its credit-default swap spreads. Oracle’s BBB-1 rating and $117 billion in debt mean its disclosures will draw close attention. Altcoins to watch could react to shifts in investor sentiment as S&P points to a lack of clarity on data center and chip financing. Alphabet and Amazon are expected to show negative free cash flows and rising capex, keeping investors fixated on debt supply and spending guidance.
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